Adidas AG is catching up with Nike Inc. in the race to be China's top sportswear company, on the strength of a tailwind from products like $3,100 fur-trimmed leather trench coats and high-heeled tennis shoes.

The German maker of sneakers and hoodies reported a 12% rise in fourth-quarter China sales for a 27% climb during the full year, offering a bright spot amid a 272 million ($353 million) quarterly loss due to problems with its Reebok brand. The results come amid a China sales slump at U.S.-based Nike and continuing problems for China's homegrown Li Ning brand.

Key to the German company's strategy is widening the Adidas brand in China beyond shoes and sweats. It is shaking up its retail outlets so that individual stores focus on specific niches ranging from basketball and other athleticapparel to teen and casual wear.

'There will be no more 'one size fits all,' ' said Colin Currie, managing director of Adidas Group's Greater China division. He added that in the next two years the company will roll out more segmented shops in its 7,000 China-based stores, offering specialized products to attract the backpacking crowd and even fashion divas.

For shoppers like Quan Guoxian, a 32-year-old advertisingdesigner in Beijing, Adidas's strategy is a hit. 'Adidas is by far more youthful, fresh and fashionable than any of the other sports brands,' Mr. Quan said, adding that he updates his work attire at Adidas, spending about 1,000 yuan, or $160, every three months on knit shirts and other casual wear. Only a small part of his purchases are for soccer gear for his weekly matches, he said.

Adidas now holds an 11.2% share of China's 148 billion yuan ($23.8 billion) sportswear market, according to market-research firm Euromonitor International, while Nike has 12.1%. Nike, which has long dominated China, posted a 12% sales decline at its Greater China business for the fiscal quarter ended Nov. 30.

A Nike spokeswoman declined to comment, citing a quiet period ahead of an earningsrelease later this month. In late December, Nike executives said the company had been struggling with inventory and planned to expand existing stores, draw attention to its brand and build up its premium products. 'We're taking early, small steps, but you can expect that to accelerate as we move forward,' Charlie Denson, president of the Nike brand, said during a conference call.

Adidas posted a loss due to a 265 million write-down of the value of its Reebok brand during the fourth quarter, traditionally its weakest. It expects overall sales to rise by a midsingle-digit percentage in 2013 and predicts earnings per share to rise between 12% to 16%, helped by a more favorable tax rate.

Sports-apparel makers were among the first clothing companies to expand across China, making sweats and track suits common sights on the streets. But they have faced more competition from the casual-wear retailers like Gap Inc. of the U.S. and Inditex SA's Zara, which now offer outfits suitable for the office.

At the same time, the culture of working out has also been slow to catch on, and athletic-gear makers have struggled to sell higher-margin apparel and exercise equipment.

Li Ning Co., which once had ambitions of overtaking Nike at home and overseas, was stuck for years with too many products it ordered after the 2008 Beijing Olympics, leading to discounts that took a toll on its brand. The Beijing-based company is now in the midst of a three-year overhaul program led by U.S. buyout firm TPG Group.

That explains why Adidas is stocking many of its China outlets with its NEO brand red skinny-fit jeans, fashion ponchos and button-down gingham shirts.

The push for fashion appears to be working for Adidas in China, said James Roy, a senior analyst at Shanghai-based consultancy China Market Research Group. 'Most people here aren't wearing athleticapparel because they're not playing sports,' he said.

Mr. Currie said Adidas has been hiring talent from retailers like Swedish fashion company Hennes & Mauritz AB and Spain's Zara. Adidas will also beincreasinglytailoring stores by region, offering products that fit climate and customer differences.

The company is also revving up its NEO line, a teen-targeted casual fashion segment, to compete with a new set of rivals. 'This is where the pent-up demand is for Chinese consumers,' said Mr. Currie, adding that Adidas is building its casual-sportswear lines at a faster pace than any of its other brands.

Adidas is also tightening its inventory management. Across China, where only 10% of the approximately 7,000 Adidas stores are owned by the company, Adidas is now analyzing the sales data of its franchise partners and overseeing ordering, so that it can move products off shelves in 90 days or less, he said. To persuade franchisees to adopt new niches, Adidas first makes changes among its company-owned stores, then shows the results to franchise owners, he said.

The company's game plan is playing out in China's central city of Wuhan, where five Adidas stores that were identical outlets five years ago have now been split up to focus on different crowds